Balance of Scales - Competition Law and IPR
"Competition is not only the basis of protection to the consumer but is the incentive to progress."- Herbert Hoover.
Competition law is essential in regulating market practices, preventing anti-competitive agreements, curbing monopolistic trade practices, preventing abuse of dominant position, ensuring optimum allocation of resources, offering a wider choice to customers with better qualities, protecting the interests of consumers and maintaining a fair market scenario.
The Competition Act, 2002 (“Act”) indisputably represents a paradigm shift from the previous Competition law i.e., the Monopolistic and Restrictive Trade Practices Act, 1969 (“MRTP”). It is the outcome of the changing economic scenario of our country and was introduced to meet the changing needs of the society and strengthen the competitive process. The raison d'etre of the Act is to establish an environment conducive to the promotion and sustenance of competition, protecting consumer interests, curb and fight off abusive and distorted trade practices thereby preventing monopoly.
Intellectual Property on the other hand refers to the work of human intellect and creativity. The main incentive being the progress of science and technology, arts, literature and other creative works to encourage and reward creativity. The holders of IP rights are granted certain exclusive rights for a limited time i.e., a kind of temporary monopoly to reap the benefits of their hard work and commercialize from it, to foster innovation and benefit the public. Thus, IP laws work on the “Reward Theory”, whereby other market players are excluded from dealing in the same product or services, without prior permission, thereby reducing competition in the market.
Junction between IPR and Competition Law
Competition law and IPR laws are complementary to each other as the rights provided by the latter are regulated by the former to prevent any misuse of the exclusive right. The objective of both these laws is similar as they seek to promote competition, consumer interest and innovation in the market. However, their modus operandi is different and that is when the cracks surface.
Competition (Amendment) Bill, 2020 Recently the Ministry of Corporate Affairs, taking into consideration the recommendations of the Competition Law Review Commission, published the Draft Competition Amendment Bill, 2020 (“Bill”) on 12th February 2020. A plethora of changes have been made like the constitution of the Constitution Commission of India ("CCI"), revision of Appreciable Adverse Effect on Competition (“AAEC”), the inclusion of buyer cartels amongst others. However, the most significant change would be the introduction of Section 4A which will extend the inclusion of IPR exemption in cases of abuse of dominant position. The Bill further seeks to omit Section 3(5) which exempts IP holders from the applicability of provisions related to anti-competitive agreements as under Section 3.
IPR and Section 3(5)- The intention of Section 3(5) is to promote innovation by rewarding the IP holders with an exclusive right over his work enabling him to exclude others from using the same without prior permission, thus, giving him the right to commercially exploit his invention. This provision conferred protection specifically in licensing agreements, thus acting as a shield. In the case of K. Sera Sera Digital Cinema Ltd. v. Pen India Ltd., only reasonable conditions can be imposed as may be required for protecting the IPR. In this case, the CCI had held that when a licensor opts for a selective distribution agreement, the copyright holder has the right to deny distribution to others that have a history of infringing IP and the same is justified. There exists no blanket exemption for IP holders from the ambit of competition law as was laid down in the case of H.T. Media v. Super Cassettes.
The term ‘reasonable conditions’ has not been defined nor is there an explanation that would help in easing the tussle that arises between IP laws and competition law based on its ambiguity. Due to this the natural presumption arises that any unreasonable conditions imposed by an IP holder will be beyond the ambit of the protection afforded by Section 3(5). As there are no fixed criteria to what would amount to reasonable/ unreasonable conditions we have to rely on precedents to understand the same. In the case of Manju Bharadwaj v. Zee Telefilms Ltd. the performance of a prohibited trade practice amounted to unreasonable conditions; tie-in arrangements were held to be unreasonable conditions in the case of Ajay Devgun Films v. Yash Raj Films Pvt. Ltd. and so on.
Abuse of Dominant Position and IPR- Under the present competition regime, having a dominant position in the relevant market is not an offence. However, Section 4 of the Act prohibits the abuse of such a dominant position.
As per Explanation (a) of section 4 “dominant position” means a position of strength, enjoyed by an enterprise, in the relevant market, in India, which enables it to—
(i) operate independently of competitive forces prevailing in the
relevant market; or
(ii) affect its competitors or consumers or the relevant market in its favour.”
Following this, if an enterprise directly or indirectly imposes unfair or discriminatory- conditions for the transaction of goods ad services; or on the price of the goods or services.
Based on the above provisions various companies like Microsoft, Google and recently Monsanto Holdings Private Ltd. among others were brought under the scrutiny of the CCI for abusing their dominant position in the defined relevant market. Such instances bring forth the constant tussle between IP laws viz-a-viz the competition law regime specifically abuse of dominant position.
The problem arises due to the notion that IPR is equal to monopoly and thus, dominance in the market is the natural result. However, just as holding a dominant position does not amount to abuse, similarly, the use of IPR is not an abuse of dominance. In Huawei Technologies Co. Ltd. v. ZTE Corp., the European Court of Justice ("ECJ") noted that a balance ought to be struck between free competition and safeguarding the rights of IPR holders when determining if an IPR holder has abused his position or not.
In cases of abuse of dominance, the Act does not provide a defence regarding the reasonable exercise of IPR. The CCI stated “Unlike section 3(5) of the Act, there is no exception to section 4(2) of the Act. Therefore, if an enterprise is found to be dominant pursuant to explanation (a) to section 4(2) and indulges in practices that amount to denial of market access to customers in the relevant market; it is no defense to suggest that such exclusionary conduct is within the scope of IPR.”
There is a need to extend the defence of reasonable conditions and use of IPR in cases involving abuse of dominant position as well and not just for anti-competitive agreements. The introduction of Section 4A aims to extend the defence and remedy to IPR holders in cases of abuse of dominant position as well. This section reads as follows:
“4A. Nothing contained in section 3 or section 4 shall restrict the right of any person to restrain any infringement of, or to impose reasonable conditions, as may be necessary for protecting any of his rights which have been or may be conferred under:
(a) the Copyright Act, 1957 (14 of 1957);
(b) the Patents Act, 1970 (39 of 1970);
(c) the Trade and Merchandise Marks Act, 1958 (43 of 1958) of the Trademarks Act, 1999 (47 of 1999);
(d) the Geographical Indications of Goods (Registration and Protection) Act, 1999 (48 of 1999); (e) the Designs Act, 2000 (16 of 2000);
(f) the Semi-conductor and Integrated Circuits Layout-Design Act, 2000 (37 of 2000);
(g) any other law for the time being in force relating to the protection of other intellectual property rights.”
It must be noted that Section 3(5) of the Act, provides full protection to IPR licensing agreements for better innovation in the market. In cases of practices that result in AAEC due to abuse of dominant position, Section 4 is resorted to. But with the introduction of Section 4A, IPR holders will have another recourse, which might lead to misuse and will ultimately hamper healthy competitiveness in the market.
The CCI is armed with tools by way of Section 19 of the Act, that allows it to assess whether any activity is anti-competitive, abuses the dominant position etc. The ambit of Section 19(4) that deals with factors for verifying abuse of dominant position is wider than the factors prescribed under Section 19(3) (for anti-competitive agreements), owing to the phrase “any other factor”. This empowers the CCI to further investigate cases falling separately under Section 4A by way of the rule of reason. This can be easily exploited by dominant entities to justify them exercising monopoly in IPR as there have been no subsequent amendments to Section 19.
Law and society are symbiotic because a law exists to meet the needs of society, thus it cannot be separated from society and must adapt itself accordingly. Advancement is frequently empowered and in like manner, innovations are compensated via allowing a restrictive right to the innovator under the IPR system. This prize empowers the IP holder to bar others from utilizing his property without his/her consent, accordingly, opening the extent of shady and exclusionary conduct concerning prevailing IP holders to prevent rivalry on the lookout. The aim of IPR and Comptition law is the same i.e., 'consumer interest' making available wider options to consumers through rewarding creativity and restricting anti-competitive trade practices. However both adopt different approaches that might be contradictory in nature.
Section 4A might be a step towards balancing such contradictions ad imbalances. In order to ensure effective implementation of the Section to get the desired the results, it is pertinent that all provisions be construed harmoniously with a narrow interpretation to prevent its misuse. Competition law and IPR are are two weights of the scale that need to be balanced to maintain equilibrium in the market.
 Intellectual Property and Competition Law: Divergence and Convergence of the Two in India and USA, Shambhavi Shukla & Abhishek Khare, International Journal of Law and Legal Jurisprudence Studies: ISSN:2348-8212 (Volume 1 issue 6)  2017 SCC OnLine CCI 31 ¶11.  (1996) 20 CLA 229.  2012 SCC OnLine Comp AT 233.  Section 2(r) of Competition Act, 2002.  Section 2(s) of Competition Act, 2002.  Section 2(t) of Competition Act, 2002. https://www.cci.gov.in/sites/default/files/SinghaniaMainOrder050711_0.pdf https://www.business-standard.com/article/pti-stories/hc-dismisses-monsanto-plea-against-cci-s-order-to-investigate-the-company-120052101402_1.html  Case C-170/13, EU:C:2015:477 ¶42  Ibid., ¶20.5.85.  Competition Amendment Bill, 2020.
 “Section 4A of the Draft Competition (Amendment) Bill, 2020: A Legislative Blunder Endorsing IPR Monopoly and Disrupting Balance” (NUALS Law JournalMay 18, 2020) <https://nualslawjournal.com/2020/05/18/section-4a-of-the-draft-competition-amendment-bill-2020-a-legislative-blunder-endorsing-ipr-monopoly-and-disrupting-balance/#_edn16>
 “Analysis of IPR and Abuse of Dominant Position in Light of the Draft Competition (Amendment) Bill, 2020 - NLUJ Law Review” (NLUJ Law ReviewJune 11, 2020) <http://www.nlujlawreview.in/analysis-of-ipr-and-abuse-of-dominant-position-in-light-of-the-draft-competition-amendment-bill-2020/>
 “IPR Protection under the Indian Competition (Amendment) Bill, 2020 – GNLU Journal of Law & Economics” (Gjle.in2020) <http://gjle.in/2020/08/19/ipr-protection-under-the-indian-competition-amendment-bill-2020/>